Question

50) The Federal Open Market Committee A) is the main policy-making organ of the Federal Reserve. B) is headed by the president of the New York Federal Reserve Bank. C) consists of the Fed chairman and the 12 regional bank presidents. D) meets every week to review the state of the economy 50) 51) When the quantity of money demanded is greater than the quantity of moneyupplied, people 1) bonds and the interest rate A) buy; falls B) sell; falls C) buy; rises D) sell; rises 52) Which of the following best describes the chain of events in the money creation process? A) Low interest rates discourage people from holding currency. When they deposit the currency. B) Desired reserves increase, encouraging banks to seek new deposits. When the new depositors C) The monetary base increases. Banks acquire excess reserves which they loan out, increasing interest rates rise, increasing the quantity of money come in, desired reserves decrease and the quantity of money increases. deposits and also the quantity of money. The new deposits then create additional excess reserves. D) Currency is drained from the quantity of money into the banking system, where it is lent out. The loans are spent, increasing the currency drain and also the quantity of money MD2 MDi MDo 0 2.8 2.9 3.0 3.1 3.2 3.3 Real money frillions of 2009 dollars) In the ahae fieure suppose the economy is initially on the demand for money curve MD1. What is 53)

Answer 1

50 )

Answer: ( A)

It is main policy making organ of the Federal Reserve. It primarily decides the open market operation of Federal Reserve.

51)

Answer: ( D)

Demand is larger than supply, so the interest rate will rise and rise in interest rate cause fall in value of bond.

52)

Answer: ( C)

When monetary base rises, it raises the lending capacity of banks, so lending leads to rise in deposits.